Analysts, lawmakers irked by government's handling of gas pipeline deal with Russia, question economic sense of pact
pipeline.
While the countries’ leaders hailed the accord, analysts and opposition lawmakers criticized the government’s handling of what they said was an obscure deal involving Ukraine’s major asset.
The heads of Ukraine’s Naftogaz oil and gas monopoly and Russia’s Gazprom gas giant signed the pact during a CIS summit in Chisinau, Moldova.
“There are grounds for congratulations,” said Russian President Vladimir Putin, who attended the summit. “In the document, we realized our previous arrangements in such an important sphere.”
Ukrainian officials said the agreement creates a consortium “on equal terms” in managing the gas pipeline.
The consortium will be registered in Ukraine, meaning that it will be subject to Ukrainian law, and will have its headquarters in Kyiv.
The Chisinau agreement follows a letter of intent signed by Russia, Ukraine and Germany on June 10 during a meeting in St. Petersburg. The letter laid the preliminary groundwork for joint work on a consortium that would manage the pipeline.
The deal signed in Chisinau, however, fueled speculation Germany has dropped out of the agreement.
A U.S. Energy Information Agency report issued in August said that Germany’s participation in the consortium would help attract financing for the pipeline system. Near‑term renovation of the transit system running through Ukraine will cost $2.5 billion, and as much as $15 billion will be required to develop Ukraine’s pipeline system over the next ten years.
Ukrainian government officials, however, said the two sides agreed to discuss the addition of West European partners to the consortium by the end of the year.
While officials of both Russia and Ukraine have publicly portrayed the arrangement as beneficial for both sides, analysts and some lawmakers don’t share that view. Most said they simply didn’t know what to make of the agreement.
Volodymr Saprykin, director of the energy program at the Razumkov Center for Political and Economic Studies, said the agreement was a positive sign that the two nations are improving their cooperation on energy issues, but said that details of the deal were still cloaked in secrecy. Saprykin said the details of such a large deal should have been a matter for more public discussion and debate.
“Theoretically, there could be a positive side to the deal,” he said. “But Ukrainian officials have yet to explain what it is, or how, exactly, the venture will make money.”
Gazprom exports 140 billion cubic meters of gas to Europe per year, most of which passes through Ukraine. Ukraine receives about 30 billion cubic meters of gas from Russia each year, or around 40 percent of its annual needs, as payment for use of the pipeline.
In recent years, Ukraine’s gas transit pipeline has fallen into disrepair and the nation needs to attract investment for its rehabilitation.
Oleksandr Hudyma, a parliament deputy from the Our Ukraine faction who heads the Rada’s gas industry subcommittee, told Public Radio on Sept. 7 that assurances suggesting the consortium would attract billions of dollars in investment were “utter nonsense.”
Hudyma said he would make public two classified memoranda about the consortium. One of them, he said, was issued by the Finance Ministry and warned about potential financial losses that could result from the deal.
Serhy Baulin, deputy state secretary at the Finance Ministry, said on Sept. 19 this year that Ukraine stood to lose up to Hr 6 billion if the consortium was created. Baulin also said the country would need to spend Hr 2 billion on subsidies to stem the expected growth in gas prices. Baulin was fired four days later.
Viktor Yushchenko, the head of parliament’s Our Ukraine faction, has also been critical of the consortium.
“Ukraine today a very poor international image,” he said. “The current government is incapable of providing political and economic stability. Therefore, this is not to the time to decide the fate of the pipeline.” Yushchenko said the Rada would scuttle the deal when it is debated on Nov. 12.
Russia’s ambassador to Kyiv and Gazprom founder Viktor Chernomyrdin, tried to dismiss the concerns after the agreement was signed.
“I am convinced that Ukraine stands to lose nothing in the process,” he told Interfax‑Ukraine on Oct. 8.
He also dismissed statements made by parliament deputies who alleged that Ukraine had caved in during negotiations on the consortium.
“This is nonsense,” he said. “Russia, Ukraine and Western European countries will work together in the future to modernize the gas transit system. It’s a win‑win situation.”
“Germany has already signed on, and the Italians want in, too,” he said.
Heiner Garbe, a spokesman for Germany’s Ruhrgas, told Radio Liberty on Sept. 7 that politicians would have to iron out legal and technical issues before the natural gas firm could consider participating in the venture.
According to calculations made last year by experts at the European Bank for Reconstruction and Development, the market value of Ukraine’s gas transportation system stands at around $26 billion, including $3 billion worth of underground facilities.
